High water mark in insurance

The Insurance in Superannuation Voluntary Code of Practice is helping to focus funds’ attention on insurance benefit design and communication to members.

We look at how adopting parts of the Code could be good for members and a market opportunity for funds.

It’s been a long road for the Insurance in Superannuation Working Group (ISWG). After nearly 18 months, five discussion papers and more than 70 submissions, ISWG’s Superannuation Voluntary Code of Practice comes into effect from 1 July 2018.

Funds adopting the Code have three years to comply with its requirements but a number have commenced work already. In this article, we focus on three key standards that could be good for members and may give adopters of the Code a competitive advantage, as well as help them avoid member complaints:

* Ensuring automatic insurance cover is appropriate and affordable for your membership
* Better insurance cessation arrangements
* Clear communication principles.

While industry stakeholders have raised the Code’s implementation cost, potential inconsistency with regulation and its non-enforceable nature, the standards highlighted above could be good for members and represent a market differentiator for funds.

Making insurance ‘appropriate and affordable’
A key objective of the Code is to ensure that insurance offered on an automatic basis in super is appropriate and affordable, and must not inappropriately erode retirement income.

Section 4 of the Code includes standards to assess a member’s insurance needs based on specific criteria and states that cover costs should not exceed 1 per cent of an estimated aggregate level of salary. For young members, the levels of cover or premiums will likely be lower.

Opportunities for super funds
Section 4 of the Code represents an opportunity for funds to make their insurance offer more competitive and more closely aligned to member needs. It is also an opportunity to re-engage with members on insurance cover in super, particularly younger members. Funds must communicate any changes to their insurance design and publish their insurance strategy to help members determine whether cover is right for them, as well as details on how the fund determines cover for young members.

If funds can get their messaging right and empower members with clear choices at an early age when they join, this can help establish a strong fund-member relationship for future years.

A changing landscape
AustralianSuper has signed up to the Code and is already working to implement the Code across its membership base. AustralianSuper is also reducing its insurance premiums and, from November 2018, new members under age 25 will not receive default insurance, but have the option to purchase it. Although these initiatives are separate to implementation of the Code’s requirements, they are in accordance with the requirement for automatic insurance cover to be appropriate and affordable.

The fund’s head of insurance, Richard Weatherhead, chaired the ISWG’s technical committee and has guided AustralianSuper’s thinking on the Code. In our past discussions with Weatherhead, he shared the following insights into AustralianSuper’s experience and the potential benefits for adopter funds and their members:

“The key thing for the member is that they have confidence when they join. That they are going to have a robust insurance package that’s designed to meet their needs and doesn’t unduly erode their account, and secondly, when they change jobs they won’t be stranded with multiple insurance policies. And finally, and most importantly, that they have confidence through the claims process; that their claims will be handled fairly and in a timely manner.”

Better insurance cessation arrangements
Section 4 of the Code also introduces consistent standards to improve the cancellation and reduction of cover. The Code steps out methods, access to instructions, specific information to communicate, and time frames.

Standardisation equals a better experience
In our experience, the approach taken by funds for cancelling or changing cover differs significantly. Some funds make it very clear how members can increase their insurance cover but not so clear how members can reduce or cancel their cover. For example, it is often hard to find instructions on a fund’s website. The Code states that clear instructions must be provided and lists where it must be provided.

Similarly, some funds are happy to receive a cancellation request by email. At the other end of the scale, some funds prefer various request forms to be lodged. The Code should help remove any confusion for members and protect both parties.

Superannuation Complaints Tribunal tips
The Tribunal suggests a range of tips for funds to help improve consumers’ understanding of insurance:
1. Clearly communicate the insurance offering upfront, including the level of cover provided, what the premiums are and how they are calculated and charged, and any opt-out provisions
2. Clearly communicate any changes in the payment of insurance premiums and/or related advice
3. Where possible, include the impact on the member, using examples and/or calculations that clearly demonstrate the differences in the calculation of premiums and the level of cover
4. Provide clear instructions for opting out of or cancelling insurance cover, and advise members when you have not been able to act upon their instructions.

Less confusion, less risk
Adopting the Code’s standards could help trustees avoid disputes, such as case D16-17\087 brought before the Superannuation Complaints Tribunal. In this case, the member wrote to their fund requesting the cancellation of their death and disability cover. The fund replied with a letter and a form to sign and return to confirm the instruction. The member read the letter as confirmation of cancellation, however, and did not return the form. The Tribunal noted that the fund’s letter did not state that the member needed to return the form for cover to be cancelled, and highlighted various instances of unclear wording. The Tribunal set aside the trustee’s decision and substituted its own, resulting in the trustee refunding nine months’ worth of premiums.

Clearer communication principles
Section 5 of the Code is designed to help members make informed decisions by providing easy to understand information. This includes using plain language, testing insurance concepts with members, providing key fact sheets with welcome packs, using standard headings for definitions and adding more information into annual statements. (Section 5 aside, standards for improving communications are contained throughout the Code.)

Complaints and enquiries
Over the past two years, Transform has produced the Tribunal’s Annual Report. As published in the 2016-17 report tabled last October, total complaints and complex enquiries were up 17 per cent on the previous year. We think adopting aspects of the Code may help funds to avoid some of the insurance-related, complex administration complaints and enquiries.

A chance to improve understanding
We note that insurance premium deductions were a popular area for complaint last year. The Code’s key fact sheets should make it easier to interpret and understand product features up front. Clear and consistent details about premiums should help members. Other sections of the Code, such as 5.11 to 5.16 on insurance definitions, may also improve member understanding. While the non-enforceable Code seems broadly in line with the Tribunal’s tips for better communication (see box), success will hinge on the extent of industry uptake and the capabilities of individual funds during adoption.

The Tribunal’s chairperson, Helen Davis, shared the following observations:

“The Code presents an opportunity for trustees to address communication with members. Complaints about the deduction of insurance premiums often come down to how clearly any changes have been communicated, including any opt-out or cancellation provisions.

“While all good communication pieces are compliant, not all compliant communication pieces are effective. In addition to meeting disclosure requirements, trustees should think about the member experience, and ensure they’re communicating in a way that their members understand.”

Transform’s insurance checklist for trustees
1. Transform’s insurance checklist for trustees
* Engage your people
* Implementation of the Code will involve most of a fund’s operational areas, so ensure sufficient resourcing
* Set aside time for informal conversations and formal feedback
* Develop a clear position and strategic direction.

2. Audit your existing insurance
* Review your existing insurance products
* Map insurance messaging through your member touchpoints
* Audit your communications channels against the Code.

3. Engage your members
* Communicate proactively about the Code and your fund’s position
* Be ready to answer questions about your compliance with the Code
* Tailor your communication to segments, such as under 25s.

4. Make small improvements now
* Explain concisely the value of insurance through super
* Adopt a clear, approachable tone of voice.

5. Make longer term member experience changes
* Cut technical, legal and compliance jargon from your communications
* Focus on creating a smooth, end-to-end insurance experience using human-centred design
* Regularly test products, communications and processes with real members.

Want to hit the ground running with the new Code? We can help. Contact Ian Taylor, Principal Consultant , Transform Communications or Christine Dvoracek, Director.

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